Colleges and universities offering programs that lead to careers in occupations that are relatively high-paying and have low unemployment tend to have lower student loan default rates.
Some of the top “low-default occupations” for jobs that typically require an associate’s degree theoretically would be dental hygienists and respiratory therapists.
For jobs needing a bachelor’s degree, some careers with the best combination of high wages and low unemployment rates are aerospace engineers and software developers.
For master’s degrees, nurse practitioners and physician assistants are career choices where there are low default rates.
The professional and technical services industry, for example, provides higher-than-average wages with lower-than-average unemployment as does the healthcare industry.
Finding the right occupation with higher-than average wages and lower-than-average jobless rates is important because those jobs tend to have lower student loan default rates.
Student loan default rates have been generally rising in the past decade, according to the U.S. Department of Education.
Default rates reached a historical low of 4.5 percent in 2003 — prior to the Great Recession. But by 2014, the latest data available, the average student loan default rate in the nation had risen to 11.5 percent.
Finding what programs offered by a college or university is important in determining whether its students are likely to default.
In addition to occupational characteristics of graduates, Chmura Economics & Analytics created a student loan default model that includes institutional characteristics directly related to the school and its student body, as well as the economic climate of the state in which the school is located. Those factors were important predictors as well.
For example, institutions with a higher percentage of students who did not graduate with a degree had higher default rates. This finding is expected, since a student who takes on debt for a four-year degree and drops out after two years is unlikely to obtain a job that will pay a salary sufficient to repay the loan.
It is not easy to answer the question whether students who graduate with a degree in an occupation that is not in demand are more likely to default on their loans than students with degrees that are needed by employers.
Student loan default is affected by many factors other than occupation, including overall economic conditions and students’ family finances.
Another challenge in determining what occupations will have the smallest default rate is the availability of data availability. Although higher education institutions know the degree choice of the students who default on their loans, the Department of Education only releases the overall loan default rate of institutions.
We do know the number of students who graduate from each institution and the degree they were awarded, such as engineering, economics or registered nurse. Some degrees, such as registered nurse, sync up easily to a specific occupation. Others, such as economics, could end up in a variety of occupations from financial adviser to risk assessment.
(This column first ran in the Richmond Times Dispatch on April 8, 2018)
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